Friday, September 14, 2012

WILL PM PRESS AHEAD WITH HIS ECONOMIC DECISIONS?

B.RAMAN

The three important economic decisions taken by the
Government of Prime Minister Dr.Manmohan Singh on September 13 and 14,2012, are
not going to herald an economicmiracle
for tomorrow.

2. These decisions relate to a significant increase
in the price of diesel and permitting foreign direct investment in the civil
aviation and retail sectors. The decision on civil aviation was expected by the
political class as whole, but that relating to the retail sector was not. The
Government’s earlier attempt some months ago to permit FDI in the retail sector
had to be given up due to strong opposition from some constituents of the
ruling coalition as well as from the opposition BJP.

3. Despite the persisting slide-down in the
economy, the Government of Dr.Manmohan Singh was avoiding taking these
important decisions till now due to fears of adverse political consequences. Such
adverse consequences might have been in the form of a break-up of the ruling coalition
and consequent mid-term polls.

4. Another reason for the earlier hesitation of
Dr.Manmohan Singh was the lack of enthusiasm for the proposal to permit FDI in
the retail sector and to increase the diesel price from Shri A.K.Antony, the
Defence Minister, who is perceived to be close to Mrs.Sonia Gandhi and enjoys
her total political support despite his lack-lustre performance as the Defence
Minister. The strong backing reportedly enjoyed by him from Mrs.Sonia Gandhi came in the way of the Prime Minister
overruling him.

5. Shri Pranab Mukherjee, former Finance Minister,
had little access to Mrs.Sonia Gandhi and did not enjoy her confidence. He was,
therefore, not in a position to impart strength to Dr.Manmohn Singh in
overcoming Shri Antony’s foot-dragging on important issues of economic reforms.

6. The induction of Sri P.Chidambaram, who is
believed to enjoy the confidence of Mrs.Sonia Gandhi to the same extent as Shri
Antony, has given new confidence to the Prime Minister that he might be able to
push ahead with at least some of the economic reforms because Shri Chidambaram
shares the Prime Minister’s views on the urgent need for some economic
decisions, even if they be controversial, and his views will carry conviction
to Mrs.Sonia Gandhi.

7.The immediate significance of the three economic
decisions taken are more political than economic. Firstly, the negative drag
that Shri Antony used to exercise with the backing of Mrs.Sonia Gandhi has now
been neutralised by Shri Chidambaram.

8.Secondly, the Government and the Congress have
realised that the impression of policy and governmental paralysis was not only
adding to the negative drag on the economy, but was also creating a very poor
image of the Government and the party in India and abroad. The “Washington Post’s”
negative projection of a worse-than-Hamlet Prime Minister has given a healthy
shake-up to the Government.

9. The Government can afford to ignore the negative
assessment of the “Time” magazine which is often prejudiced against India. Moreover,
“Time” does not enjoy the same attention and respect in international financial
circles as the WP does. The WP’s assessment cannot be dismissed lightly as of
no consequence.

10.Thirdly, as a result of the shake-up, the
Government and the Congress decided to re-launch the stalling economic reforms
even if there are negative political consequences. The Government has decided
that the fear of a mid-term poll should not be allowed to stand in the way of
important policy decisions relating to the economy.

11. Taking the important decisions is only the first
step. Going ahead with their implementation despite the demand for a roll-back
from coalition allies will be a more important second step. Even in the past,
the Government had announced bold decisions, but subsequently abandoned or
diluted them because of the threats and demands from the coalition partners. When
there is a surge of such threats and demands, the Congress party tries to
exercise pressure on the Government to roll back. When faced with mounting
pressure from the party, Mrs.Sonia Gandhi had in the past shown a tendency to
succumb to it. If she and her Party do it again and pressure the Government to
roll back, the resulting loss of face for the Government and the Party could
have incalculable consequences for the economy and for the political fortunes
of the Congress.

12. There is a lot of unwarranted euphoria on the
likely economic impact of the decisions, particularly those relating to the FDI. It will take at
least five years or more for the beneficial economic impact to be felt. There
is unlikely to be any poll dividends for the Congress as a result of these
decisions.

13.These decisions are required to reverse the
economic slide-down in the medium and long-terms. The Government should show a
determination to implement them in the national interest even if the political
consequences for the Congress may not be beneficial.( 15-9-12)